Wholesale Inventories

After a Chinese session which following the MSCI failure to include Chinese stocks in its EM index, if only for the time being, was largely a dud with Shanghai stocks actually dropping by 0.1% after a late day selloff, eyes turned to Europe, which once again did not disappoint and where the bond rout continued apace, with the 10Y Bund yield spiking just after the European open, and rising above 1.05%, the widest level since September 19, before recouping some losses and trading just around 1.00% at last check.

Despite continued slowing in the pace of inventory builds in the past few months, the ratio of inventory-to-sales remains mired in a recessionary quagmire; but today's data showed some hope - which stocks hated. Inventory-to-Sales dropped from 1.30 to 1.29 (still recessionary) as Wholesale Inventories rose 0.4% (againmst +0.2% expectations) and Wholesale Sales rose a notable 1.6% (against expectations of a 0.6% rise). YoY Wholesales Sales remain in negative territory however and confirm the recessionary warning that the ratio is sending.

After a quiet Asian session, where not even the latest Chinese CPI miss was enough to push the SHCOMP to new multi-year highs, all eyes were on Europe where a few hours ago the European Commission announced it had received not one but two new proposals from Greece with the Greek government adding that it considers proposals submitted last week as remain basis for political negotiations. However, barely had Europe received the Greek addenda when it nein'ed all over them, with BBG citing an international official directly involved in talks saying that the "Greek government's revised proposal to unlock bailout funds is vague rehash of earlier plans, not considered credible."

While there were key macroeconomic data out of Asia earlier in the session, with Japan revising its Q1 GDP up from 2.4% to 3.9% (due to an upward revision to capex) making some wonder if it simply didn't snow in Japan this winter, as well as Chinese trade data that was once again disappointing with the third consecutive drop in exports coupled with an 18.1% collapse in imports hinting that nothing is going well in China's economy (which once again sent stocks soaring this time up another 2.2% on certainty another PBOC rate cut is imminent, pushing the PBOC to a fresh 7-year high of 5,132), it was actually a leaked Obama comment on the strong USD that moved markets.

With the big macro data out of the way, attention today and for the rest of the week will focus on the aftermath of the latest Chinese rate cut - its third in the past 6 months - which managed to boost the Shanghai Composite up by 3% overnight but not nearly enough to make up for losses in the past week; any resumption of the 6+ sigma volatility in the German Bund, which already has been jittery with the yield sliding to 0.52% only to spike to 0.62% shortly thereafter before retracing some of the losses; and finally Greece, which in a normal world would have concluded its negotiations during today's Eurogroup meeting and unlocked up to €7 billion in funds for the coming months. Instead, Greece may not only not make its €770 million IMF payment tomorrow but according to ever louder rumors, is contemplating a parallel currency on its way out of the Eurozone.

The recovery economists are so sure is right around the corner never is. What we can reasonably assume here is that the economy was bumped in a manner not seen since the Great Recession, and that we still don’t know how that will be resolved. The inventory problem is enormous and it at least suggests far more humility about assured rebounds that have never yet arrived and to which are based on arguable figures that at best are backward facing.

For the first time since July 2008, Wholesale Sales fell for the 4th month in a row in March (-0.2% vs +0.5% expectation). On a YoY basis, this is the worst sales drop since November 2008. Perhaps even more problematic is the weakness in inventories - which will drag Q1 GDP even lower - as the last time we saw a weaker inventory growth (+0.1% in March) was May 2013. Wholesale Inventories to Sales remain at Lehman (and 2000) highs.

While the US is waking up in anticipation of what is once again said to be the "most important nonfarm payrolls number" at least since the last most important such number, because anything 250,000 and above puts the June rate hike right back on the Fed calendar, while a collapse in this lagging indicator will be explained away with harsh rain showers in April, and send stocks soaring due to yet another delay in tightening expectations despite Yellen's outright warning of overvalued stocks, the UK has been up all night following a dramatic election, whose outcome has been largely the opposite of what the experts predicted, with Conservatives set to win an outright majority, resulting in embarrassment for Labor, the Liberal Democrats and the UKIP, both of which have already seen dramatic changes in their leadership, and moments ago both Nick Clegg and Nigel Farage announced they would stand down as party leaders.

Quickly looking at the potential market moving events this week, US payrolls on Friday will be the clear focus. In terms of expectations, our US colleagues are expecting a +225k print which matches the current Bloomberg consensus, while they expect the unemployment rate to drop one-tenth to 5.4%. Elsewhere, Thursday’s UK Election will be closely followed while Greece will once again be front and center.

Overnight market news was once again driven by the Asian superbubble, where as expected, the Hang Seng (+1.22%) soared once more and is now up 9.5% for the week, following news the Hong Kong Exchanges and Clearing Ltd (HKEx) expects it will "substantially increase" quotas for the stock connect program between Hong Kong and Shanghai, HKEx Chief Executive Charles Li said on Friday. The exchange could boost the current quotas, which cap how much mainland investors can buy Hong Kong stocks and vice versa under the trading link, by more than 20 or 30 percent, Li said at a media briefing in Hong Kong. Li did not give a precise date for when the quotas would be raised, but one thing is clear: everyone in China, and Hong Kong, must be all in stocks if the Chinese housing bubble can not be reflated. The Shanghai Comp closed higher by almost 2.0% following better than expected Chinese inflation data, while HK stocks continued their recent rally to closer higher by 9.5% for the week.

Despite another data series revision by the Department of Commerce, there was no way to put lipstick on the pig of America's wholesale trade data, and as reported moments ago, the all important merchant sales for February dropped for 3rd month in a row in February, the longest stretch since the last recession.  What's worse however, is that the annual pace of decline has now stretched over both January and February, confirming that 2015 is now officially a year of contraction for the US economy. As a reminder, every time this series suffers an annual decline, there is a recession.

As noted several hours ago, the main story overnight is not that Greece once again narrowly averted a Grexit when it was reported it would make its scheduled payment to the IMF today (adding that next month is a "different story") a development that was met with yet another ultimatum by its "partner", the Eurozone, but the dot com bubble deja vu-esque move in Hong Kong stocks, where the Chinese, seemingly tired of pushing up their local market into the stratosphere have turned their attention southward and are desperate to buy up every single Hong Kong stock.

Yesterday it was only the US that got the full benefit of the market-wide stop hunt that sent the US market soaring on its biggest opening ramp in 2015 following the worst payroll data since 2013, because Europe was closed for Easter Monday. Which means today it was Europe's turn to celebrate atrocious US data (yes, yes, snow - because somehow tremendous January and February jobs data was not impacted by snow), and in the first European trading session of the week, equities have started off on the front-foot.

There was a point in 2010 when American capitalism might have had an opportunity to heal itself and commence on a long march toward sustainable growth and real wealth gains. But the monetary politburo would have none of it - keeping the pedal to the metal until this very moment... and the rest is history. The Fed and the other central banks around the world have fomented a new and even more virulent and dangerous financial bubble.